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The Senior Management and Certification Regime (SM&CR) – what is it and why do we need it?

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The Senior Management and Certification Regime (SM&CR) – what is it and why do we need it?

Following the banking crisis in 2008, the Parliamentary Commission for Banking Standards (PCBS) recommended the creation of a new framework focused on increasing senior management accountability. Based on this recommendation, Parliament passed legislation in December 2013 that prompted the primary regulators of the financial services sector, the Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA), to implement a Senior Management and Certification Regime (SM&CR).

Martin Kisby, Head Of Comliance at Equinity Credit Services

Martin Kisby, Head Of Comliance at Equinity Credit Services

When this legislation passed the Approved Persons (AP) regime had already been in place for several years. It was designed to ensure that providers of financial services had directors who could manage their businesses with integrity and honesty and had the necessary skillset to ensure consumer protection.

What the Approved Persons regime did not do was hold other employees to account, particularly those who held Senior Management (SM) or Significant Harm (SH) functions.

As such, the SM&CR was created to ensure accountability at all levels within regulated firms. In order to achieve this a number of new areas were created, including;

  • Specific Senior Management functions for firms operating within the financial services sector;
  • A requirement that Senior Management and Significant Harm functions are certified on an annual basis;
  • A set of conduct rules for all employees (with the exception of some ancillary staff);
  • A prescribed set of responsibilities that SM functions must take ownership of;
  • A requirement to provide six years’ worth of regulatory references for individuals operating in SM and CR functions that detail any issues or disciplinary action taken;
  • A Statement of Responsibilities for all SM functions, which details the specific areas of the business they are accountable for.

Following further changes to legislation made by Parliament in May 2016, the SM&CR has now been extended to all Financial Services and Markets Authority (FSMA) authorised firms.

In December 2018 SM&CR replaced the Approved Persons regime for dual-regulated insurers (those regulated by both the PRA and FCA). Further to this, from the 9thDecember 2019, all regulated financial firms must comply with the SM&CR.

 What do firms need to do to prepare?

There are a number of steps firms need to take in order to ensure they are ready for the implementation date set by the FCA.

First, firms must identify which of three categories they fall into. ‘Limited Scope’ accounts for businesses that provide financial services but not as their main operation e.g. sole traders, oil market participants and service companies. There are approximately 33k firms in this category. ‘Core’ is for firms that sell financial services as their main operation. There are approximately 14k firms in this category. Finally, ‘Enhanced’ applies to firms which, due to their size, complexity and possible impact on consumers, are subject to additional regulatory requirements. This includes firms who manage assets of £50 billion or more, mortgage lenders (excluding banks) with 10k or more regulated mortgages outstanding and all Client Assets Sourcebook (CASS) firms. There are approximately 350 firms in this category.

The category dictates the provider’s required action; there are a number of additional elements that Enhanced firms will need to implement. All firms, however, will need to decide which individuals will fall under the Senior Management and Certification functions.

The FCA has indicated that current Approved Persons will be able to ‘Grandfather’ across into the SM functions and have suggested that Approved Persons should be reviewed and validated now, removing the need to make additional applications once SM&CR is implemented.

 SM&CR Requirements

Each of the SM functions will require a ‘Statement of Responsibility’. For this, the FCA has produced a template document setting out roles and responsibilities. These must be submitted to the FCA when applying for an SM function to be approved (or converted from an Approved Person).

These Statements of Responsibility must be kept up to date and resubmitted to FCA whenever there is a significant change to a SM’s responsibilities.

In addition to the requirement Statement of Responsibilities, the FCA has mandated a number of Prescribed Responsibilities. These Prescribed Responsibilities must be allocated to one or more of the SM functions to ensure accountability, but one SM can be responsible for more than one.

The Prescribed Responsibilities are:

  • Performance by the firm of its obligations under the Senior Management regime, including implementation and oversight;
  • Performance by the firm of its obligations under the Certification rules;
  • Performance by the firm of its obligations in respect of notifications/training of the conduct rules;
  • Responsibility for the firm’s policies and procedures for countering the risk that the firm might be used to further financial crime;
  • Responsibility for the firm’s compliance with CASS (if applicable).

Under SM&CR, firms are required to assess individuals in SM and Certification functions to confirm that they are fit for their roles. In addition, the FCA suggests that firms should assess any non-executive directors who are not Senior Managers.

The FCA is proposing a simple roll out of the existing rules to authorised firms, which are expected to determine their own strategy for assessing competence. This means that firms will need to consider how best they can assess the qualifications, training and personal characteristics of an individual for any Senior Manager or Certification role that they are performing.

As part of this process, there is a new requirement for firms to perform criminal record checks on each Senior Manager applying for approval.

As previously referenced, SM&CR introduces regulatory references for all SM&CR functions.

Firms will be required to obtain references from previous employers on all SM, CR and non-exec directors for a period of 6 years. There is also an obligation on the previous employer to provide references if any significant new information comes to light.

If a reference is requested, the previous employer must disclose whether:

  • The candidate ever breached a conduct rule.
  • A description of the basis and outcome of disciplinary action in relation to any breaches.
  • Any other information that is relevant to assessing whether someone is fit for their role.

A key consideration here is how firms log, monitor and manage this flow of information.

 Conduct Rules

Two tiers of conduct rules have been introduced. Tier 1 rules are intended to cover all employees and Tier 2 are specific rules for individuals in an SM function.

Individual conduct / Tier 1 rules

  1. You must act with integrity.
  1. You must act with due skill, care and diligence.
  2. You must be open and co-operative with the FCA, PRA and other regulators.
  3. (FCA only) You must pay due regard to customers and treat them fairly.
  4. (FCA only) You must observe proper standards of market conduct.

Senior Manager / Tier 2 conduct rules

  1. You must take reasonable steps to ensure that the business of the firm for which you are responsible is controlled effectively.
  2. You must take reasonable steps to ensure that the business of the firm for which you are responsible complies with the relevant requirements and standards of the regulatory system.
  3. You must take reasonable steps to ensure that any delegation of your responsibilities is to an appropriate person and that you oversee the discharge of the delegated responsibility effectively.
  4. You must disclose appropriately any information of which the FCA or PRA would reasonably expect notice.

In order to ensure understanding of these conduct rules and individual requirements, firms are obligated to ensure that full staff training is performed.

Finally, under the Senior Management and Certification Regime, firms are required to report any disciplinary action taken against a person for any breach of the conduct rules to the FCA. For Senior Managers this notification must be within seven business days; for all other individuals notification should be made annually. This notification requirement does not affect firms’ existing obligation under Principle 11.

A common misconception is that if a financially regulated firm is outsourcing processes, these updated rules apply only to the outsourcing partner. This is not the case – all financially regulated firms must implement the SM&CR, even if all their financial products are managed externally.

Despite this, regulated firms working with best of breed outsourced service providers remain at an advantage, as these companies will provide guidance and support throughout the process. 

Next Steps

By 9th December 2019, all firms should have identified all their SM and CR individuals and ensured that these individuals are appropriately trained on the requirements, in particular the conduct rules and Prescribed Responsibilities.

By 9th December 2020, all other employees should have received training and be aware of their obligations under the Tier 1 conduct rules, and assessments should have been conducted on the Senior Management and Certification functions.

Although there is much to consider, this is a positive and significant step in ensuring enhanced accountability for the financial services market and, following successful implementation within the banking sector, is expected to strengthen firms and protect consumers.

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Mobile engagement will prove vital for enhanced customer experience in the world of finance

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Mobile engagement will prove vital for enhanced customer experience in the world of finance 1

By Nick Millward, VP Europe at mGage

With the world becoming more digital – as smartphones play an intrinsic part of everyday life – customer behaviours are changing, and the financial services industry should look to further enhance their mobile engagement to deliver exceptional experience and increase customer loyalty. With Gartner predicting that 89 percent of businesses are facing competition based predominantly on the consumer experience, the need for excellent customer service has never been greater.

Today, customers require a seamless experience from their financial service providers, where banking tasks can be handled easily and securely from mobile devices. They also expect businesses to be present at whatever time they want and on whichever channel they use the most.

In fact, 73 percent say they are more likely to leverage digital banking and payments following the current situation. Therefore, financial brands need to commit to a move to mobile and allow a variety of financial tasks to be carried out via mobile messaging to deliver exceptional customer service, which in turn will increase customer retention.

Mobile channels for financial services

Consumers are clear about how they want brands to communicate with them. They want brands to take note of their preferences for which platform to use, to deliver them engaging and interesting messages, or send them information that makes their lives easier, and they want brands to provide some assurance that they have got security right too. There are a variety of channels available for financial services to utilise without customers having to download additional applications from those that they already use frequently. From next-generation Rich Communication Services (RCS), to Push Notifications and SMS, these are all perfect communication platforms for delivering the best possible customer service.

To meet customer demand for more conversational and personalised interaction, businesses should utilise the new RCS messaging platform, which brings text messages to life. In the financial sector, RCS can act as a customer’s real-time branded personal assistant where queries can be answered within the platform by utilising automated chat and rich media items such as mini bank statements can be sent. RCS also builds customer trust with features such as logos and branding and the verified sender scheme, which provides an additional layer of security and boosts consumer confidence. As a platform, RCS can achieve 14 times higher engagement rates and has a two-way nature allowing for users to initiate conversations.

The utilisation of Push Notifications can also prove beneficial for the financial sector to complement the growing use of banking apps, with the message being delivered to the mobile device without the user having to be in the mobile app itself. It allows banks to send timely, relevant notifications to their customers – whether to check a balance, review the latest interest rates, or inform them of the approval of an application. With 55 percent of consumers using their mobile banking app as the primary way to check their account balance, Push Notifications are a key way to alert customers to any changes or important information that they need to be aware of, without relying on them opening the app. Being the most universal form of non-voice communication, SMS is available on any mobile phone device and will remain a key part of a brand’s communication strategy as a channel that many people know how to use, regardless of their demographic. SMS messaging has provided financial institutions with a ubiquitous channel to support the customer journey, with 83 percent of financial organisations confirming that after deploying this technology they have witnessed a greatly improved customer experience.

SMS still remains a technology that can increase efficiency while lowering service costs – providing a cheaper and faster service for consumers that often results in a better service experience too. This will prove key for banks and financial organisations that do not have large call centres, giving customers an alternative form of contact. It also gives businesses a tool for a variety of tasks, such as sending balance updates, fraud alerts, one-time password and payment reminders, as well as using it to verify any new transactions or payees that have been set up via a banking app.

Offering a range of innovative solutions which each bring their own benefits, the power of mobile messaging must not be underestimated, with 88 percent of financial organisations admitting that it has greatly impacted their customer experience. Through these channels, brands can achieve higher rates of engagement in line with customer expectations for instant support.

Customers want brands on mobile

As the world becomes more digital, customers are demanding a move to mobile, making it essential for brands to leverage mobile messaging or enhance their current offering to stay ahead of the competition. With two thirds of consumers now preferring to use text over voice when receiving customer service and 77 percent of people aged 18-34 saying they are likely to have a positive perception of a company offering text capabilities, it is clear that there is a large appetite for these solutions.

With these channels, users can receive support or raise an issue at a time of their choosing to give ultimate convenience. For example, RCS and SMS can be used to report lost or stolen cards, or raise a query relating to a transaction instantaneously without having to wait on the phone for long periods of time.

With 78 percent of consumers admitting that texts have given them more autonomy and confidence when interacting with their bank due to the convenience and accessibility it offers, mobile messaging has proven to be a beneficial resource to improve the customer journey in the financial sector.

Future of messaging

In today’s industry, where customer loyalty is highly valued and it is relatively easy to switch banks, it is imperative that businesses provide the best customer experience and offer a competitive edge. By utilising mobile messaging and enhancing their current communications, brands can unlock convenience and customer-centricity to receive heightened levels of engagement and stay relevant to their customers.

With operational savings by as much as 20 percent, it highlights just how beneficial mobile messaging can be for financial service organisations worldwide. By listening to customer expectations and the growing trends being witnessed in the industry, financial institutions can leverage such solutions to achieve the associated advantages to set them apart from their competition and ensure their success in the future.

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Why are there so few female CEOs and what does it take to succeed in a male dominated industry?

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Why are there so few female CEOs and what does it take to succeed in a male dominated industry? 2

By Gayle Carpenter, Director of creative agency, Sparkloop  

When you think about inspirational female leaders or role models, names such as Malala Yousafzai, Ruth Bader Ginsburg and Michelle Obama, spring to mind.

But for me, I just can’t get Melanie Griffiths in Working Girl out of my head, strutting her stuff in those 1980’s shoulder pads! That film was pretty ground-breaking, addressing previously unspoken topics such as equal rights for women in the workplace, feminism, and the wage gap; topics that are still relevant today.

Although twenty years on, have things changed much for the role of women in the workplace? From where I’m standing as a female Creative Director, women are still striving to be treated equally.  So actually, things haven’t really moved on and efforts to redress this balance are moving all too slowly.

In 2016, Forbes cited that women made up only 11% of creative directors worldwide. Looking at current statistics, over 2 million people are employed in the creative industry in the UK, but there is still a glaring gender imbalance faced by the entire sector with just 12%-16% of creative directors across design, concept and film being female.*

We talk about the tide turning but is it really? And when? What do we do about it?

The Importance of Female Role Models

The next statistic from Forbes is one that resonates  the most with me and is something we absolutely need to address: 88% of young women say they lack female role models in the industry.

I have worked hard to become one of that 12%-16% who can write ‘Creative Director’ in my email signature and therefore feel that this role comes with a huge responsibility to be a role model,  to be someone that other aspiring female directors can relate to, learn from and be encouraged by. It is my duty, and the duty of all females in the same position, to look over my shoulder and encourage women to follow me rather than forging ahead and leaving them in my wake.

Realise the Dream

To stay at the top and thrive, there are a number of factors that I adhere to:

Be confident in your ability – embrace what YOU can bring to the table and enhance the positive differences.

Have empathy – Encourage team members to feel safe and confident in their own abilities.

Build a great team around you – Your team is largely your key to success, so it is essential to take time to choose the right people to support you. In my experience, female led teams are often more loyal as they thrive on the support and empathy they are shown.

An article from the Harvard Kennedy School cites that ‘Previous research has shown that mixed gender teams are more generous and egalitarian, and that teams with a larger percentage of women perform better by building meaningful relationships and creating successful work processes.’

Gayle Carpenter

Gayle Carpenter

Be heard but don’t shout – strike a balance between being heard and being too confident. You have an opinion and it matters but you can cut through the noise rather than shout above it.

An equal partnership

On a personal level, women are, of course, traditionally disadvantaged if they have to take time out of their career to start a family. Challenge the perception that this automatically pushes you back down the career ladder and encourage partners to become a more equal co-parent. Sharing the responsibility will afford you the opportunity to pursue your career, and with less guilt.

Old boys rule

There are definitely hurdles which continue to make it difficult for women to get to the top and the most evident one in my experience is that despite ‘times changing’ and women starting to bridge that gaping male/female divide, there is still an old boys network at play.

As I have moved up this male dominated career ladder, it has definitely been a challenge to be taken seriously. At times, being female has hampered my chance of winning work and I have definitely been treated differently to men in the process. A particular anecdote from my career highlights this reality – when I was leading a design team, despite my professional, calm nature and passionate yet measured opinions, I was still referred to by the all-male board as ‘Feisty Gayle’. My rather more ego-driven and loud male counterpart was just ‘assertive’. Why is that?

Accept and adapt

It does take courage, grit and determination to succeed at the top as a female creative director, and to earn the respect you deserve, but the advice I have given in this article is for any individual who wants to be successful in business or who wants to lead a team.

As a female leader, take the time to encourage women in all sectors to believe they can get to the top, if this is what they really want, and lead by example. Let’s face it, there isn’t much of a historical framework in place to refer to but, bit by bit, we can build one.

As an aspiring female director, and if you really want to make it, don’t fight the system as it stands. Acknowledge it and do something about it as it’s not going anywhere fast. It is important to take stock, remind yourself you are not a man, and believe that you can succeed as a female.

And you really don’t have to wear a 1980’s power suit to be taken seriously in business -– we have at least moved away from that – unless you want to of course!

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Why hybrid working will shift the economy, not ruin it

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Why hybrid working will shift the economy, not ruin it 3

By Pete Braithwaite, COO at B2B self-service portal KIT Online,

Today explained that despite the major drive to get people back to the office, which the government has now U-turned on, the future comes in the form of hybrid working, which could make cities outside of London and Manchester have access to a larger pool of talent.

“When we’ve seen how well we can perform at home, the idea of going back into the office five days a week is a little unnecessary. Of course with some roles, including many in healthcare, working from home isn’t an option, some do not have the space or desire to work from home and others prefer the social and creativity aspect of working in the office, which is fine. But we can’t scare people to return to the office when they’re trying to protect themselves and their family’s health, and they can do their jobs perfectly well at home,” he said.

“The future is neither working from home or working in the office. It’s hybrid working, with the ability to work from anywhere. Being around people is what inspires some. For others, it’s nature. Who’s to say we can’t be productive by working in a retreat in the countryside so long as we have the right equipment and services to keep us connected? When people work at home during the day, the local shops, restaurants and entertainment venues in their immediate vicinity are likely to be positively impacted.  This could lead to a shift to a revitalised and more localised economy with employment spread more evenly rather than just in city centres.”

Pete Braithwaite

Pete Braithwaite

New remote-working technology has helped many companies to adapt easily to the new ways of working. Many national and international teams were already using video-conferencing software but this has become the day-to-day modus operandi for most successful teams now. Other companies have taken the opportunity to review their systems and ensure that they are fit for a more distributed workforce, investing in more portable devices that help employees work anywhere around the house and balance work with parenting. The move away from a desktop reliance has made lives easier.

“The fourth industrial revolution is much closer than we thought. I fully understand that the Government wants to breathe more life into our cities, but the genie isn’t going to go back into the bottle – working from home isn’t going to go back to being only when someone has a doctor’s appointment.

“Instead, there needs to be a blended way of working. Otherwise, the best people will leave for a business which is adapting faster.”

His comments come after some claimed the demise of the so-called ‘Pret economy’, whereby fewer people are going to cafes, shops and restaurants on their lunch and on their commute. But Braithwaite delves on the recent story of the CEO of Pret, who announced last week that instead of following businesses, they’re now following their customers.  Pret has adapted its business model, using Deliveroo to deliver at home and to students, selling coffee beans in Waitrose and, most radically, introducing a coffee subscription model.

“Successful companies aren’t downsizing, but instead they’re adapting. The future will be leaner and the economy will shift as people spend their money differently, such as in suburbs and on home renovation.”

Recent stats revealed that numbers of people spending in London’s suburban town centres have picked up fast, and small independent traders in towns such as Okehampton recently reported more customers through their doors, after a recent YouGov poll found 30% of consumers say they have used local retailers more since the pandemic hit.

“Cities won’t die, but well-paid workers, with the rise in remote working, could actually become less congregated in London, and spread themselves thinner, thus spending more in other locations. IT will need careful investment, and human interaction will still be King, but you don’t need to have one without the other,” he concluded.

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